Neoliberalism

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Neoliberalism

Origins Industrial Revolution Mercantilism

Ideas Central banks · Corporations Democracy Denationalization Deregulation Economic freedom Economic integration Economic interdependence Economic liberalization Exchange rate Fair trade · Fiat currency Foreign exchange reserves Foreign direct investment Free markets Free trade (area) Globalization Harmonization of law Inflation adjustment Inflation targeting Intellectual property Intergovernmentalism Marketization · Mixed economy Negative income tax Open market operations Private property · Privatization Public highway School vouchers Single market Supranationalism Tax cuts · Tax reform

Theories Comparative advantage Consumer price index Economic growth Economic rationalism Friedman rule / k-percent rule Gross domestic product International economics International finance International trade Laffer curve · Monetary theory Quantity theory of money Symmetrical inflation target

Economics Chicago School Keynesianism · Monetarism Neoclassical Trickle-down · Supply-side

Movements Classical liberalism Economic freedom Free market · Free trade Globalization · Libertarianism Reaganomics · Rogernomics Thatcherism

Governance Association of Southeast Asian Nations (ASEAN) Cato Institute Devolution European Union Greater Arab Free Trade Area (GAFTA) International Monetary Fund International organization North American Free Trade Agreement (NAFTA) Reason Foundation World Bank

People Adam Smith · David Ricardo Friedrich Hayek · George Stigler John Maynard Keynes Milton Friedman Thomas Friedman

Related topics Anti-capitalism Anti-globalization Alter-globalization Criticism of intellectual property Anti-copyright Critique of capitalism

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Originally coined by its critics and opponents, "neoliberalism" is a label referring to the recent reemergence of economic liberalism among political and economic scholars and policy-makers. Its supporters and proponents are influenced by neoclassical theories of economics and socialist political philosophies and usually describe themselves simply as "economic liberals".

Economic liberalism last exerted significant influence during the 1970s and early 1980s, in particular during and after the 1970s stagflation crisis and the wider effects of the 1970s to early 1980s Latin American debt crisis.^[1] After a period of relative prosperity during the mid to late 1980s, renewed interest in economic liberalism began following the end of the Soviet Union in 1991. By the end of the 1990s, it had become an established trend.

A key characteristic of this reemergent economic liberalism is an emphasis on decentralizing economic institutions and the support of free markets and free trade.

United States

"Neoliberalism" also refers to a political movement in which prominent members of the American left (such as Michael Kinsley, Robert Kaus, Mickey Kaus, and Randall Rothenberg) embraced some free market positions such as anti-unionism, free market economics, and welfare reform.^[2] This term should not be confused with new liberalism, a term used in the United States.

[edit] Policy implications

Broadly speaking, neoliberalism seeks to transfer control of the economy from state to the private sector.^[3] The definitive statement of the concrete policies advocated by neoliberalism is often taken to be John Williamson's^[4] "Washington Consensus", a list of policy proposals that appeared to have gained consensus approval among the Washington-based international economic organizations (like the International Monetary Fund (IMF) and World Bank). Williamson's list included ten points:

• Fiscal policy discipline;
• Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
• Tax reform – broadening the tax base and adopting moderate marginal tax rates;
• Interest rates that are market determined and positive (but moderate) in real terms;
• Competitive exchange rates;
• Trade liberalization  – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by law and relatively uniform tariffs;
• Liberalization of inward foreign direct investment;
• Privatization of state enterprises;
• Deregulation  – abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions; and,
• Legal security for property rights.

The Chicago School economists are known for:

• Supporting school vouchers. Proponents assert that voucher systems would promote free market competition among schools of all types, which would provide schools incentive to improve. Successful schools would attract students, while bad schools would be forced to reform or close. The goal of this system is to localize accountability as opposed to relying on government standards.
• Supporting Milton Friedman's negative income tax or basic income.
• Supporting competition law.
• Supporting decriminalization of drugs and prostitution. In 2005, Friedman and more than 500 other economists called for discussions regarding the economic benefits of the legalization of marijuana.^[5]
• Supporting paid/volunteer defense instead of conscription. Milton Friedman would later state that his role in eliminating the draft was his proudest accomplishment.^[6]
• Chicago School economists opposed Copyright Term Extension Act and filed an amicus brief in Eldred v. Ashcroft.^[7]

The Austrian School is a heterodox^[8] school of economics that advocates adherence to strict methodological individualism. Proponents of the Austrian School hold that the only valid economic theory is logically derived from basic principles of human action. Alongside the formal approach to theory, often called praxeology, the school has traditionally advocated an interpretive approach to history. Proponents of praxeological method hold that it allows for the discovery of economic laws valid for all human action, while the interpretive approach addresses specific historical events. On the other hand, critics of the Austrian school contend that its methods consists of post-hoc analysis and do not generate testable implications, and so fails falsifiability.^[9][10] During its history the position of the Austrian school within economics profession has changed several times from the center to the fringe. Currently its position lies between mainstream and heterodox economics.^[11]

Austrian School theorists, like Ludwig von Mises, insist that praxeology must be value-free. That the method does not answer the question "should this policy be implemented?", but rather "if this policy is implemented, will it have the effects you intend?" However, Austrian economists often make policy recommendations that call for the elimination of government institutions - anarcho-capitalist solutions. These recommendations are similar to, but further reaching than the minarchist ideas of Chicago School economists. Both schools advocate strict protection of private property, and support for individualism in general, and are often cited by conservatives, laissez-faire liberal, libertarian, and Objectivist groups for support,

[edit] History

[edit] Earlier systems

Arguments that stress the economic benefits of unfettered markets, in line with neoliberalism, first began to appear with Adam Smith's (1776) Wealth of Nations and David Hume's writings on commerce. These writings were directed against the Mercantilist ideas that had been dominant during the previous centuries, and served to guide the policies of governments throughout much of the 19th century.

Nevertheless, statist ideas slowly began to regain a following amongst the intellectuals that had rejected them during the early Enlightenment. State interventionism increased towards the end of the 19th century; in the United States the Progressive Era saw an accelerated movement to re-institutionalize government controls over the economy.

With an intellectual and political foundation in place, the onset of the Great Depression and the rapid industrialization of the Soviet Union led to increased support for government economic control as a means of securing rapid industrialization.^[12]

[edit] Embedded liberalism

The term embedded liberalism refers to the economic system which dominated worldwide from the end of World War II to the 1970s. (Harvey 2005) argues that at the end of World War II, the primary objective was to develop an economic plan that would not lead to a repeat of the Great Depression during the 1930s. Harvey notes that under this new system free trade was regulated "under a system of fixed exchange rates anchored by the US dollar's convertibility into gold at a fixed price. Fixed exchange rates were incompatible with free flows of capital."^[13] Harvey argues that embedded liberalism led to the surge of economic prosperity which came to define the 1950s and 1960s.

Across much of the world, the work of John Maynard Keynes, which sought to formulate the means by which governments could stabilize and fine-tune free markets, became a highly-influential ideology. Within the developing world, several developments – among them decolonization, a desire for national independence and the destruction of the pre-war global economy^[14], and the view that countries could not effectively industrialize under free market systems (e.g., the Prebisch-Singer hypothesis) – encouraged economic policies that were influenced by communist, socialist and import substitution precepts.

The period of government interventionism in the 1950s and 1960s was characterized by exceptional economic prosperity, as economic growth was generally high, inflation was contained^[15], and economic distribution was comparatively equalized.^[16] This era is known as les Trente Glorieuses ("The Glorious Thirty [years]") or "Golden Age", a reference to many countries having experienced particularly high levels of prosperity between (roughly) World War II and 1973.

[edit] Collapse of embedded liberalism

David Harvey notes that the system of embedded liberalism began to crack beginning towards the end of the 1960s.^[17] The 1970s were defined by an increased accumulation of capital, unemployment, inflation (or stagflation as it was dubbed), and a variety of fiscal crises.^[17] He notes that "the embedded liberalism that had delivered high rates of growth to at least the advanced capitalist countries after 1945 was clearly exhausted and no longer working."^[17] A number of theories concerning new systems began to develop, which led to extensive debate between those who advocated "social democracy and central planning on the one hand" and those "concerned with liberating corporate and business power and re-establishing market freedoms on the other.^[18] Harvey notes that by 1980, the latter group had emerged as the leader, advocating and creating a global economic system that would become known as neoliberalism.^[18]

Some argue that the strains which occurred were located in the international financial system,^[19][20] and culminated in the dissolution of the Bretton Woods system, which some argue had set the stage for the Stagflation crisis that would, to some extent, discredit Keynesianism in the English-speaking world. In addition, some argue that the postwar economic system was premised on a society that excluded women and minorities from economic opportunities, and the political and economic integration given to these groups strained the postwar system.^[21]

[edit] Post-1970s economic liberalism

[edit] Chicago School

The Chicago school of economics describes a neoclassical school of thought within the academic community of economists, with a strong focus around the faculty of University of Chicago, some of whom have constructed and popularized its principles.

The school emphasizes non-intervention from government and rejects regulation in laissez-faire free markets as inefficient. It is associated with neoclassical price theory and libertarianism and the rejection of Keynesianism in favor of monetarism until the 1980s, when it turned to rational expectations. The school has impacted the field of finance by the development of the efficient market hypothesis. In terms of methodology the stress is on "positive economics" – that is, empirically based studies using statistics to prove theory.

Approximately 70% of the professors in the economics department have been considered part of the school of thought. The University of Chicago department, widely considered one of the world’s foremost economics departments, has fielded more Nobel Prize winners and John Bates Clark medalists in economics than any other university.

Those who attend to the Chicago School prefer some form of competition law, school vouchers, a central bank, intellectual property and prefer Milton Friedman's negative income tax as a replacement to the existing welfare system, arguing that it is simpler and has fewer of the "perverse incentives" of "government handouts".

According to the 2008 Index of Economic Freedom and The Economic Freedom of the World, issued by the Heritage Foundation and the Fraser Institute respectively, seven countries with the most free economies in the former index are currently the following: Hong Kong, Singapore, Ireland, Australia, United States, New Zealand and Canada (all of them former constituents of the British Empire). Hong Kong is ranked number one for 14 consecutive years in the Index which attempts to measure "the absence of government coercion or constraint on the production, distribution, or consumption of goods and services beyond the extent necessary for citizens to protect and maintain liberty itself." Because of this, Milton Friedman described Hong Kong as laissez-faire state and he credits that policy for the rapid move from poverty to prosperity in 50 years.^[22] Much of this growth came under British colonial control prior to the 1997 resumption of sovereignty by the People's Republic of China.

[edit] Today

Main article: Indices of Economic Freedom

Map of countries by 2006 Economic Freedom of the World, published by the Fraser Institute.

The annual surveys Economic Freedom of the World and Index of Economic Freedom are two indices which attempt to measure the degree of economic freedom in the world's nations, using a definition similar to laissez-faire capitalism.

Studies have shown these rankings correlate strongly with higher average income per person, higher income of the poorest 10%, higher life expectancy, higher literacy, lower infant mortality, higher access to water sources and less corruption.^[23][24]

The people living in the top one-fifth of countries enjoy an average income of $23,450 and a growth rate in the 1990s of 2.56 percent per year; in contrast, the bottom one-fifth in the rankings had an average income of just $2,556 and a -0.85 percent growth rate in the 1990s. The poorest 10 percent of the population have an average income of just $728 in the lowest ranked countries compared with over $7,000 in the highest ranked countries.

The life expectancy of people living in the highest ranked nations is 20 years longer than for people in the lowest ranked countries.^[25]

The Economic Freedom of the World score for the entire world has grown considerably in recent decades. The average score has increased from 5.17 in 1985 to 6.4 in 2005. Of the nations in 1985, 95 nations increased their score, seven saw a decline, and six were unchanged.^[26] Using the 2008 Index of Economic Freedom methodology world economic freedom has increased 2.6 points since 1995.^[27] Members of the World Bank Group also use Index of Economic Freedom as the indicator of investment climate, because it covers more aspects relevant to the private sector in wide number of countries.^[28]

Worldwide index of economic freedom 2008 - top and bottom 15 rankings published by The Wall Street Journal and the Heritage Foundation[29]
Rank Country Freedom % 1  Hong Kong 90.3 2  Singapore 87.4 3  Ireland 82.4 4  Australia 82.0 5  United States 80.6 6  New Zealand 80.2 7  Canada 80.2 8  Chile 79.8 9  Switzerland 79.7 10  United Kingdom 79.5 11  Denmark 79.2 12  Estonia 77.8 13  Netherlands 76.8 14  Iceland 76.5 15  Luxembourg 75.2		Rank Country Freedom % 143  Angola 47.1 144  Syria 46.6 145  Burundi 46.3 146  Republic of the Congo 45.2 147  Guinea-Bissau 45.1 148  Venezuela 45.0 149  Bangladesh 44.9 150  Belarus 44.7 151  Iran 44.0 152  Turkmenistan 43.4 153  Myanmar 39.5 154  Libya 38.7 155  Zimbabwe 29.8 156  Cuba 27.5 157  North Korea 3.0

[edit] United Kingdom

Margaret Thatcher was Britain's Conservative Prime Minister between 1979 and 1990 and took office amid a stagnation of the British economy. Along with fellow Conservative Keith Joseph, she sought to resolve these problems through the dismantling of Britain's elaborate government economic controls, taking a tough stance against Britain's unions following the so-called "Winter of Discontent" of 1978–1979, and by the prioritization of inflation control (see Thatcherism).

The UK's comparative macroeconomic performance has improved since the implementation of Thatcherite economic policies. Since Thatcher resigned as British Prime Minister in 1990, UK economic growth was on average higher than the other large EU economies (,i.e. Germany, France and Italy). Additionally, since the beginning of the 2000's, the UK has also possessed lower unemployment, by comparison with the other big EU economies. Such an enhancement in relative macroeconomic performance is perhaps another reason for the apparent "Blatcherite" economic consensus, which has been present in modern UK politics for a number of years.

[edit] Ireland

Two covers of the Economist newspaper, showing the speed and effect of the change. Two special reports on Ireland, the first in 1988, describing Ireland as the "Poorest of the rich"; the second in 1997, less than a decade later, showing the "The Celtic Tiger: Europe's shining light".

The Republic of Ireland adopted neoliberal policies in the late 1980s.

The result was a prodigious economic boom, known as the "Celtic Tiger" (as in "tiger economy"). This was led by a surge in inward investment in high end industries in services, and lower taxation levels. From 2002, this was augmented by low interest rates set by the European Central Bank which encourage private sector consumption. In July 2006, a survey undertaken by Bank of Ireland Private Banking showed that, of the top 8 leading OECD nations, the Republic of Ireland was ranked the second wealthiest per capita country in the world, showing an average wealth per head of nearly €150,000 (~ $190,000).^[30] This is behind Japan, and ahead of other countries such as the United States, United Kingdom and Germany.

In 2005, Ireland was ranked the best place to live in the world, according to a "quality of life" assessment by Economist magazine. The country's combination of increasing wealth and traditional values gives it the conditions most likely to make its people happy, the survey found. These conditions include health, freedom, unemployment, family life, climate, political stability and security, gender equality and family and community life. The Economist said: "Ireland wins because it successfully combines the most desirable elements of the new, such as low unemployment and political liberties, with the preservation of certain cosy elements of the old, such as stable family and community life."

Ireland was transformed from one of the poorest countries in Western Europe to one of the wealthiest. Disposable income soared to record levels, enabling a huge rise in consumer spending. Unemployment fell from 18% in the late 1980s to 3.5% by the end of the boom, and average industrial wages grew at one of the highest rates in Europe. Inflation brushed 5% per annum towards the end of the 'Tiger' period, pushing Irish prices up to those of Nordic Europe, even though wage rates are roughly the same as in the UK. Public debt was dramatically reduced, enabling public spending to double without any significant increase in taxes.

Ireland's trend of net emigration was reversed as the republic became a destination for immigrants. This significantly changed Irish demographics and resulted in expanding multiculturalism, particularly in the Dublin, Cork, Limerick and Galway areas. It was estimated in 2007 that 10% of Irish residents were foreign-born. Most of the new arrivals were citizens of Poland and the Baltic states, many of whom found work in the retail and service sectors. Within Ireland, many young people left the rural countryside to live and work in urban centres. The growing success of Ireland's economy encouraged entrepreneurship and risk-taking, qualities that had been dormant during poor economic periods. However, whilst some semblance of a culture of entrepreneurship exists, foreign-owned companies account for 93% of Ireland's exports.

[edit] Iceland

Milton Friedman visited Iceland in the autumn of 1984, met with prominent Icelanders and gave a lecture at the University of Iceland on the Tyranny of the Status Quo. He participated in a lively television debate on August 31, 1984 with leading socialist intellectuals, including President Ólafur Ragnar Grímsson.^[31] When they complained that a fee was charged for attending his lecture at the University and that hitherto, lectures by visiting scholars had been free-of-charge, Friedman replied that previous lectures had not been free-of-charge in a meaningful sense: Lectures always have related costs. What mattered was whether attendees or non-attendees covered those costs. Friedman thought that it was fairer that only those who attended paid.

Friedman made a great impact on a group of young intellectuals in the Independence Party, including Davíð Oddsson who became Prime Minister in 1991 and began a radical program of monetary and fiscal stabilization, privatization, tax rate reduction (e.g., lowering the corporate income tax rate from 45% to 18%), definition of exclusive use rights in fisheries, abolition of various government funds for aiding unprofitable enterprises and liberalization of currency transfers and capital markets.

In 1975, Iceland had the 53rd freest economy in the world, while in 2004, it had the 9th freest economy, according to the Economic Freedom of the World index designed by Canada’s Fraser Institute. According to the index designed by the Heritage Foundation, Iceland as of 2008 has the 5th freest economy in the world. Davíð Oddsson was Prime Minister for thirteen and a half years, to 2004. The present Prime Minister, Geir H. Haarde supports similar policies.^[32]

[edit] United States

The Administration of Ronald Reagan governed from 1981 to 1989, and made a range of decisions that served to liberalize the American economy. In 1981, he fired over 11,345 striking air traffic control workers and banned them from future civil service, resulting in the de-certification of the Air Traffic Controllers union later that year. These firings heralded a period of long decline for American unions, which served as a strong political counterweight to business and other interests that traditionally support liberalization. He is also credited with policies that cut taxes. He is also often credited with having deregulated much of the American economy, though the 'deregulation' movement preceded his Administration, and continued after it.

These policies are often described as Reaganomics, and are often associated with supply-side economics (the notion that policies should appeal to producers, in order to lower prices, and therefore make products more affordable, rather than consumers, in order to cultivate economic prosperity).

The Reagan administration presided over the greatest rise in economic inequality in twentieth century American history^[16] In addition, median household incomes have seen little or no growth in the United States since the early 1980s. He oversaw an enormous increase in US Debt, but his supporters credit him with overseeing a recovery from the Stagflation crisis of the 1970s and America's victory in the Cold War.

[edit] Japan

Japan started to adopt neoliberal policies in the late 1980s.^{[citation needed]}

[edit] Hong Kong

The very center of Hong Kong's economic freedom comes from the government's hands-off policy. This model was developed in Hong Kong and Taiwan as a response to analyzing the cultural revolution effect in China. The Maoist era tried to forecast the production of steel, and the inability to meet this prediction led to the immediate collapse of the economy^[33]. Hong Kong's model allowed for the flexibility and renovation of any given industry in a very short time. Because of this, a 1994 World Bank report stated that Hong Kong's GDP per capita grew in real terms at an annual rate of 6.5% from 1965 to 1989. This consistent growth percentage over a span of almost 25 years is remarkable for any economic analysis^[34]. By 1990 Hong Kong's per capita income officially surpassed that of the ruling United Kingdom^[35].

This policy has often been cited by economists as an example of the benefits of laissez-faire capitalism. It has ranked as the world's freest economy in the Index of Economic Freedom for 14 consecutive years, since the inception of the index in 1995^[36][37]. It also places first in the Economic Freedom of the World Report.

[edit] Chile

The Miracle of Chile is a term coined by Milton Friedman to describe the Augusto Pinochet's support for liberal economic reforms in Chile carried out by the "Chicago Boys." Implemented economic model had three main objectives: economic liberalization, privatization of state owned companies, and stabilization of inflation. These market-oriented economic policies were continued and strengthened after Pinochet stepped down.^[38] At the time, Milton Friedman stated that the Chilean experiment was "comparable to the economic miracle of post-war Germany."^[39]

Successive governments have continued and expanded neoliberal policies in Chile.

According to the 2007 Index of Economic Freedom, Chile is the world's 11th "most free" economy today. Chile is ranked 3rd out of 29 countries in the Americas and has been a "regional leader" for over a decade. Chile had GDP growth of 6.1% in 2004, and has averaged a 4.0% annual increase in GDP over the last five years for which data is available. [1]

Currently, Chile is one of South America's most stable and prosperous nations.^[40] Within the greater Latin American context it leads in terms of competitiveness, quality of life, political stability, globalization, economic freedom, low perception of corruption and comparatively low poverty rates.^[41] It also ranks high regionally in freedom of the press, human development and democratic development. Its status as the region's richest country in terms of gross domestic product per capita (at market prices^[42] and purchasing power parity^[43]) is countered by its high level of income inequality, as measured by the Gini index.^[44]

The experience of Chile in the 1970s and 1980s, and especially the export of the Chilean pension model by former Labor Minister Jose Pinera, has influenced the policies of the Communist Party of China and has been invoked as a model by economic reformers in other countries, such as Boris Yeltsin in Russia and almost all Eastern European post-Communist societies^[45].

[edit] Canada

In Canada, these policies are often associated with Brian Mulroney, Mike Harris, Ralph Klein, and Gordon Campbell.

[edit] Australia

In Australia, these policies were originally associated with the centre-left Australian Labor Party, under the Hawke/Keating governments led by Prime Minister Bob Hawke and his Treasurer and later also PM Paul Keating from 1983 to 1996. The centre-right Liberal Party of Australia became neoliberal (see New Right) during this time whilst in opposition.

[edit] New Zealand

In New Zealand, these policy changes are often attributed to Roger Douglas the minister of Finance in the Fourth Labour Government, and are commonly referred to as Rogernomics. Roger Douglas was, and still is a controversial figure in New Zealand politics. He planned to create a 15% flat tax in New Zealand, and to privatise schools, roads and hospitals, which was moderated by the Labour cabinet at the time,^[46] although the resultant reforms were still generally considered radical in a global context. After Douglas left the Labour party, he went on to co-found ACT in 1993, which regards itself as the new liberal party of New Zealand.

Since 1984, government subsidies including those for agriculture have been eliminated; import regulations have been liberalised; exchange rates have been freely floated; controls on interest rates, wages, and prices have been removed; and marginal rates of taxation reduced. Tight monetary policy and major efforts to reduce the government budget deficit brought the inflation rate down from an annual rate of more than 18% in 1987. The Deregulation of government-owned enterprises in the 1980s and 1990s reduced government's role in the economy and permitted the retirement of some public debt, but simultaneously massively increased the necessity for greater welfare spending and has led to considerably higher rates of unemployment than were standard in New Zealand in earlier decades. However, unemployment in New Zealand is again low, hovering around 3.5% to 4%.

Deregulation created a very business-friendly regulatory framework. A survey 2008 study ranked it 99.9% in "Business freedom", and 80% overall in "Economic freedom", noting amongst other things that it only takes 12 days to establish a business in New Zealand on average, compared with a world-wide average of 43 days. Other indicators measured were property rights, labour market conditions, government controls and corruption, the last being considered "next to non-existent" in the Heritage Foundation and Wall Street Journal study.^[47]

In its Doing Business 2008 survey, the World Bank (which in that year rated New Zealand as the second-most business-friendly country worldwide), gave New Zealand rank 13 out of 178 in the business-friendliness of its hiring laws.^[48]

New Zealanders have a high level of life satisfaction as measured by international surveys; this is despite lower GDP per-head levels than many other OECD countries. The country was ranked 20th on the 2006 Human Development Index and 15th in The Economist's 2005 world-wide quality-of-life index.^[49] The country was further ranked 1st in life satisfaction and 5th in overall prosperity in the 2007 Legatum Institute prosperity index.^[50][51] In addition, the 2007 Mercer Quality of Living Survey ranked Auckland 5th place and Wellington 12th place in the world on its list.^[52]

[edit] Global spread

Chronic economic crisis throughout the 1980s, and the collapse of the Communist bloc at the end of the 1980s, helped foster political opposition to state interventionism, and in favor of free market reform policies. From the 1980s onward, a number of communist countries initiated various neoliberal market reforms, such as the Socialist Federal Republic of Yugoslavia under the direction of Ante Markovic (until the country's collapse in the early 1990s), and the People's Republic of China under the direction of Deng Xiaoping.

[edit] Reach and effects

Neoliberal movements ultimately changed the world's economies in many ways, but some analysts argue that the extent to which the world has liberalized may often be overstated. Some of the past thirty years' changes are clear and unambiguous, like^[53]:

• Growth in international trade and cross-border capital flows
• Elimination of trade barriers
• Cutbacks in defense spending, although it is unclear whether these reductions are associated with neoliberalism or the peace dividend that was supposed to accrue at the end of the Cold War
• Cutbacks in public sector employment
• The privatization of previously public-owned enterprises
• The transfer of the share of countries' economic wealth to the top economic percentiles of the population.^[54]

Other changes are not so apparent, and are debated in the literature^[53]:

• Reduction in the size of governments. Governments do not appear to have shrunk wholesale. With the exception of exceptionally high-spending governments, government expenditures (as a percentage of GDP) appears to have stayed the same since 1980. Most of the cuts to government spending appear to have been a temporary phenomenon that took place during the 1990s.
• Social welfare spending. Many governments have generally spent more on health, education, social security, welfare and/or housing. However, populations have increased and populations have aged in affluent countries. As well, some of these services (such as health care and education in the U.S.) are also very inefficiently organized.

[edit] Supporting economic liberalism

• Free markets are important to securing political freedom (e.g., Hayek, Friedman);
• Many developing countries' governments had mismanaged or exploited their economic dominance during over the mid-century;
• Many government attempts to micro-manage their economies using things like tariffs, public investment, etc. were often misdirected, poorly timed, poorly implemented and bore undesirable, unanticipated consequences; the claim by many neoliberals is that a government is incapable of managing a social system as huge as a national economy;
• Market liberalization is supposed to spur investment, technology transfer, innovation and a responsiveness to consumer demand;
• Government-owned enterprises and public entitlements were losing a lot of money, and helping bankrupt governments;
• During the 1970s, state-controlled economies proved unresponsive to economic shocks, and much of the world endured a sustained, high-inflation recession until markets were liberalized (though proponents still note that liberalization itself is only one of several factors in the recent return to prosperity; other factors include technological developments and the end of the Cold War).

[edit] State-centric approach

The state-centric approach to neoliberalism is not critical, but it concurs with the critical approach that neoliberal ideas are really just laissez-faire liberal prescriptions that overthrew Keynesianism. State-centric theorists hold that neoliberalism is "the attempt to reduce the role of the state in the market through tax cuts, decreases in social spending, deregulation, and privatization."^[55] However, the state-centric approach argues that state actors were the political entrepreneurs who formulated neoliberalism – rather than, as critics of neoliberalism would claim, capitalist political organizations, and economists and economic departments, think tanks, and politicians all supported by class-conscious capitalists. State-centric theorists argue that neoliberalism spread because it fit the voters' preferences best; they disagree in this with the critical approach, which maintains that neoliberal framing and policies were propagated by well-heeled, highly organized political machines that insisted to the public, "There is no alternative". State-centric sociologist Monica Prasad (2006) further argues that neoliberalism became dominant where the (federal) tax structure was progressive, where industrial policy was "adversarial" to business, and where welfare was associated with the poor. She asserts this was the case in the U.S. and U.K., relative to France and Germany. However, in France and Germany, taxation by the national government was regressive, industrial policy favored business, and the welfare state was widely recognized to benefit the middle class; consequently neoliberalism was not as favored by either business or the middle classes in these two countries as it was in the U.S. and the U.K. in particular. Prasad's analysis suggests that neoliberalism has been a corrective to policies that favored the working class over capitalist interests, and it was championed by autonomous state actors. However, most political sociologists would agree that only strained methodological choices would allow U.S. policy especially to be portrayed as favoring the working class over capitalist interests, even in the New Deal; state autonomy theses are generally very vulnerable to more class-sensitive historical research, especially in the case of the U.S.; and methodological choices, such as the omission of social democratic countries from her analysis, contribute heavily to Prasad's conclusions.

[edit] Opposition to economic liberalism

• Anti-sovereignty: globalization and liberalization is argued by leftist and nationalist critics to have subverted nation's ability for self-determination;^{[citation needed]}
• Exploitation: critics of neoliberal policies consider capitalistic economics to be exploitive;
• Environmental costs: more transportation, more industrial production occurs in unregulated markets;
• Increase in corporate power: some anti-corporate organizations believe neoliberalism, in difference to liberalism, changes economic and government policies to increase the power of corporations and large business and a shift to benefit the upper classes over the lower classes.^[56]

[edit] Anglo-American

"The standard neoliberal policy package includes cutting back on taxes and government social spending; eliminating tariffs and other barriers to free trade; reducing regulations of labor markets, financial markets, and the environment; and focusing macroeconomic policies on controlling inflation rather than stimulating the growth of jobs," reports economist Robert Pollin (2003).^[57] Arising out of a rejection of the class compromises embedded in previous liberal political-economic policies, including Keynesian and Active Labour Market Policies (ALMPs), neoliberal theory, institutions, policies, and practices are not regarded as politically neutral by their opponents. Their criticisms of neoliberalism are often historical materialist, bringing inequality into sharper focus.

Economists remind us that free markets are theoretically efficient, not that they are considered fair by all people,^[58] and this distinction is a foundation of the critique of neoliberalism. Opponents critique neoliberalism's alleged effects on wages, working class institutions, inequality, social mobility, working class well-being, health, the environment, and democracy.

[edit] Opposition and critics

Notable opponents to neoliberalism in theory or practice include economists Joseph Stiglitz, Amartya Sen, and Robert Pollin,^[59] linguist Noam Chomsky,^[60] geographer David Harvey,^[61] and the anti-globalization movement in general, including groups such as ATTAC. Critics of neoliberalism and its inequality-enhancing policies argue that not only is neoliberalism's critique of socialism (as unfreedom) wrong, but neoliberalism cannot deliver the liberty that is supposed to be one of its strong points.^[62] Daniel Brook's "The Trap" (2007), Robert Frank's "Falling Behind" (2007), Robert Chernomas and Ian Hudson's "Social Murder" (2007), and Richard G. Wilkinson's "The Impact of Inequality" (2005) claims high inequality is spurred by neoliberal policies and produces profound political, social, economic, political, health, and environmental constraints and problems. The economists and policy analysts at the Canadian Centre for Policy Alternatives (CCPA) offer inequality-reducing social democratic policy alternatives to neoliberal policies. In addition, a significant opposition to neoliberalism has grown in Latin America, a region that has been seen only limited implementation of neoliberal policies. Prominent Latin American opponents include the Zapatista Army of National Liberation rebellion, and the governments of Venezuela, Bolivia and Cuba.

Some critics of neoliberalism view neoliberalism as both an economic and political project aimed at reconfiguring class relations in societies. They allege that many "core countries" middle class and "labor aristocracy" families have become constrained by the cascading costs of conspicuous consumption goods and services, finding themselves losing radical amounts of time once free for personal development, recreation, family, community, and citizenship. Moreover, they claim workers have been so heavily disciplined by capital and the capitalist state that, as Alan Greenspan said, they are "traumatized" and unable to politically moderate capitalist aggression.^[63] Daniel Brook's "The Trap: Selling Out to Stay Afloat in Winner-Take-All America" (2007) describes the anti-democratic effect of decreased middle class welfare.^[64] The massive U.S. military-industrial complex adds an extra layer of repression to working class "traumatization," according to (Harvey 2005), making resistance and inequality-reducing policy innovation seem unfeasible to most workers. A "traumatized" working class allows the capitalist class absolute reign, which Harvey claims – citing the economic crises of 1873 and the 1920s – to be disastrous for economies around the globe, states, and working class people; though, he points out, on average capitalists were not negatively impacted by these crises.^[65]

Critics of neoliberalism sometimes refer to it as the "American Model," which they claim promotes low wages and high inequality.^[66] According to the economists Howell and Diallo (2007), neoliberal policies have contributed to a U.S. economy in which 30% of workers earn "low wages" (less than two-thirds the median wage for full-time workers), and 35% of the labor force is "underemployed"; only 40% of the working age population in the U.S. is considered adequately employed. The Center for Economic Policy Research's (CEPR) Dean Baker (2006) has shown that the driving force behind rising inequality in the United States has been a series of deliberate, neoliberal policy choices including anti-inflationary bias, anti-unionism, and profiteering in the health industry.^[67] However, countries have applied neoliberal policies at varying levels of intensity; for example, the OECD has calculated that only 6% of Swedish workers are beset with wages it considers low.^[68] John Schmitt and Ben Zipperer (2006) of the CEPR have analyzed the effects of intensive Anglo-American neoliberal policies in comparison to continental European neoliberalism, concluding "The U.S. economic and social model is associated with substantial levels of social exclusion, including high levels of income inequality, high relative and absolute poverty rates, poor and unequal educational outcomes, poor health outcomes, and high rates of crime and incarceration. At the same time, the available evidence provides little support for the view that U.S.-style labor-market flexibility dramatically improves labor-market outcomes. Despite popular prejudices to the contrary, the U.S. economy consistently affords a lower level of economic mobility" than all the continental European countries for which data is available.^[69]

Critics of neoliberalism examine the political foundations of the neoliberal project as well as its economic foundations. One of the most famous moments in neoliberal political history occurred when then-U.S. President Ronald Reagan's advisers had him deregulate the thrift industry. This was promoted with by pointing out that growth and investment would follow. Reagan signed the deregulation bill in 1982, saying, "All in all, I think we've hit the jackpot." Columnist Joe Conason has argued that "The best reckoning of the costs of his benign intentions is a trillion dollars."^[70] While Reagan and the United Kingdom's Margaret Thatcher laid the groundwork for working class demobilization, through eliminating collective assets by discounted sales to the private sector, enacting policies to diminish labor unions, and promoting militarization, other politicians have steadily continued the neoliberal tradition.

According to (Pollin 2003), neoliberalism under the U.S. Bill Clinton administration – steered by Alan Greenspan and Robert Rubin – was the temporary and unstable policy inducement of economic growth via government-supported financial and housing market speculation, featuring low unemployment, but also low inflation. This unusual coincidence was made possible by the disorganization and dispossession of the American working class. Santa Cruz history of consciousness professor Angela Davis has argued and Princeton sociologist Bruce Western has claimed that the high rate of incarceration in the U.S. (compared to Europe) (1 out of every 37 American adults is in the prison system), heavily promoted by the Clinton administration, is the neoliberal U.S. policy tool for keeping unemployment statistics low, and stimulating economic growth through maintaining a contemporary slave population within the U.S. and promoting prison construction and "militarized policing."^[71] The Clinton Administration also embraced neoliberalism by pursuing international trade agreements that would benefit the corporate sector globally (normalization of trade with China for example). Domestically, Clinton fostered such neoliberal reforms as the corporate takeover of health care in the form of the HMO, the reduction of welfare handoutss, and the implementation of "Workfare."^[72]

(Harvey 2005) claims that neoliberalism is a global capitalist class power restoration project. Neoliberalism, he claims, is a theory of political-economic practices that dedicates the state to championing private property rights, free markets, and free trade, while deregulating business and privatizing collective assets. Ideologically, he claims neoliberals promote entrepreneurialism as the normative source of human happiness. Harvey also considers neoliberalization a form of capitalist "creative destruction," a Schumpeterian concept.^[73] This indicates that while neoliberalism is a critical concept with a critique of capitalist class relations, it is not strictly a Marxist concept; the Marxist term for neoliberalism is "primitive accumulation."

Harvey (2000)^{[citation needed]} claims that neoliberalism has become hegemonic world-wide, sometimes by coercion. Neoliberalism has had the support of large debt restructuring organizations such as the World Bank and the International Monetary Fund (IMF), which were encouraged to promote neoliberalism in order to revitalize capital accumulation. Opponents of neoliberalism argue that neoliberalism is the implementation of global capitalism through government/military interventionism to protect the interests of multinational corporations.

[edit] European and Latin American

Neo-liberalism and globalization are considered to be related to one another. While generally theorists understand neoliberalism as the contemporary version of capitalist expansionism, linked to shifting global power and restoring profit rates, some theorists argue that the terms "globalization" and "neoliberalism" must be rigorously separated and that culture should be the primary lens through which the concepts are understood. “Free markets and global free trade are not new, and this use of the word (neoliberalism) ignores developments in the advanced economies…Neoliberalism is not just economics: it is a social and moral philosophy, in some aspects qualitatively different from liberalism.”^[74]

One Euro-Latin American tradition critical of neoliberalism contributes a perspective focusing on how neoliberalism becomes embedded in habitus, as where German author Paul Treanor argues that the ideas brought about from neo-liberalism (and neo-liberalism itself) are more of a philosophy and should not be perceived as just an “economic structure.” For example, a neo-liberal would perceive the world in a “term of market metaphors” and when members of a society commonly refer to countries as companies, that civilization would then be deemed neo-liberal instead of a liberal culture. Yet Treanor also recognizes continuity between historical liberal and neoliberal cultures. “(W)hen this is a view of nation states, it is as much a form of neo-nationalism as neo-liberalism. It also looks back to the pre-liberal economic theory- mercantilism-which saw the countries of Europe as competing units. The mercantilists treated those kingdoms as large-scale versions of a private household, rather than as firms. Nevertheless, their view of world trade as a competition between nation-sized units would be acceptable to modern neo-liberals.”^[74]

Two of Treanor's collaborators, Elizabeth Martinez and Arnoldo García, find that neo-liberalism is a collection of economic policies that has spread its ideals from country to country over the last 25 years. They claim it is clear to see that neo-liberalism treats its poorest citizens badly allowing for the rich to get richer and the poor to get poorer. Highlighting ideology, Martinez and Garcia explain the difference between neoliberalism and liberalism with reference to liberalism's association with class compromising ideology. “"Liberalism" can refer to political, economic, or even religious ideas. In the U.S. political liberalism has been a strategy to prevent social conflict. It is presented to poor and working people as progressive compared to conservative or Right-wing.”^[75] However, the liberal social contract was broken by the elite political movement that included neoliberalism in the U.S.^{[76][page # needed]}

[edit] Criticism by Cuban leaders

Cuba has played a role in supporting an anti-neoliberal agenda. General Secretary Pedro Ross informed the members of the International meeting of Workers and Unions against Neo-Liberalism and Globalization conference, “The international workers' movement is in a condition to pass to the offensive and take up its responsibility to defend the rights of the working class, the poorest, and the most marginalized by neo-liberalism.”^[77] The meeting called for an 8 page document in regards to how to "fix the situation" in Cuba, and the last days of the conference were dedicated to discussing the proposed actions that were to take place. Cuban National Assembly President Ricardo Alarcon said that Cuba survives because it embodies something that for its enemies is "too intricate" to acknowledge. He lifted the spirits of the members of the conference, declaring, “We are waging a battle on behalf of all the people of the world…Please have no doubts that this small country will be capable of continued resistance.”^[77]

Reviews such as “Cuba in the Age of Neo-liberalism,” by Raul Fernandez (reviewing Antonio Carmona Baez’s “State Resistance to Globalization in Cuba”) show how Cuba has become a much stronger economy and society because of its socialist resistance to neoliberal reform. Fernandez explains the ways in which the leaders of Cuba were successful in refusing to agree to the coercion of neo-liberal globalization, and how they were able to preserve the economic independence and self-determination of Cuba. His review discusses the progression of the Cuban economy in the years after the dissolution of the Soviet bloc and the demise of Cuba’s dependence on the economies of Eastern Europe. Through his book, Baez “emphasizes the home-grown character of the (socialist) movement (in Cuba), and contrasts it with the experience of Eastern Europe...”^[78] After the fall of the Berlin Wall, neoliberal pundits predicted the termination of Castro and his socialist government. However, the impression that Cuba left on the world after surviving extreme economic and geopolitical pressures, including the United State’s economic blockade of Cuba, was both “surprising and remarkable.” The socialist sustainability policies that the Cuban government put into place throughout the 1990s are the reason why Cuba survived the neo-liberal ambush where other societies did not.

[edit] Comparison with other ideologies

Neoliberalism and social liberalism are both alternative forms of liberalism but with different purposes. Social liberalism is defined by individual and social liberty, whereas neoliberalism is based on individual and economic liberty.

Many "neoliberals" have been defined as neoconservatives and vice versa. But they are poles apart. The founder of American neoconservatism, Irving Kristol explained that Neoconservatives are not libertarian in any sense, "Neo-cons do not feel that kind of alarm or anxiety about the growth of the State"^[79]. In fact the Bush administration has increased federal spending more than Lyndon Johnson did. Another main difference is in foreign policy, classical liberals such as Milton Friedman and the Cato Institute opposed the war in Iraq and believe in non-interventionism while the neo-cons believe that they can use the State power to reach their goals.

The term libertarian has also been used to define neoliberals. But there are key differences between the two groups. Libertarians believe in reducing government to a very minimal role (in the United States, commonly those roles enumerated in the US Constitution) or eliminating government altogether. Though they often work to eliminate government programs that designed to redistribute income, neoliberals do not seek to drastically reduce government, as government is a key institution in maintaining the conditions for wealth accumulation. Neoliberals may seek to invest in healthcare and education, if these benefit the regional capital accumulation strategy, or they may seek to invest heavily in incarceration, policing, and defense industry to maximize capital accumulation. There is also a difference on social issues. Libertarians are generally very liberal on social issues, since they all support an expansive view of individual liberties. Neoliberalism is more neutral on issues of social liberalism.

[edit] See also

• Classical liberalism
• Globalization
• Free market
• Free trade
• Small government
• Liberism
• Ordoliberalism

[edit] References and notes

• Bowles, Samuel, David M. Gordon, and Thomas E. Weisskopf. 1989. "Business Ascendancy and economic Impasse: A Structural Retrospective on Conservative Economics, 1979-87." Journal of Economic Perspectives 3(1):107-134.
• Harvey, David (2005), A Brief History of Neoliberalism, Oxford University Press, ISBN 0199283265 
• Pollin, Robert (2003), Contours of Descent: U.S. Economic Fractures and the Landscape of Global Austerity, New York: Verso, ISBN 1844675343 
• Foucault, Michel. Naissance de la biopolitique : Cours au collège de France (1978-1979). Paris: Seuil, 2004. Trans. The Birth of Biopolitics. Lectures at the College de France, 1978-1979. London: Palgrave, 2008. A recently published version of these very influential lectures not mentioned in Harvey's book.

[edit] External links

Wikiquote has a collection of quotations related to:

Neoliberalism

• Theorising Neoliberalism by Chris Harman in International Socialism journal
• What is Neoliberalism? by Dag Einar Thorsen and Amund Lie of the University of Oslo
• Neoliberalism: origins, theory, definition by Paul Treanor
• A Skeptic's Guide to the Cross-national Evidence by D Rodrik, F Rodriguez. NBER Macroeconomics Annual, 2000.
• The Last Development Crusade
• ATTAC
• "Monetarism" at The New School's Economics Department's History of Economic Thought website.
• Adam Curtis' The Trap (television documentary series) (2007) provides a critical anti-managerial view on the genesis, rise, and impact of neoliberalism. It uses a history of ideas approach to the subject.
• 'Rescuing the Middle Ground: Neoliberalism and Associational Socialism', debate between neoliberal and socialist
• IDENTITIES: How Governed, Who Pays?
• Neoliberalism and the State with John Shields and Bryan Evans, Ryerson University, Toronto.

[edit] Online lectures

• The Neoliberal City, David Harvey at the University Channel